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McDermott Wins Multiple Contract

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Offshore oil and gas-focused engineering and construction firm, McDermott International Inc. (MDR - Analyst Report) has won three consecutive contracts, the most recent one from Brunei Shell Petroleum Company Sdn. Bhd. (“BSP”).

Per the agreement, McDermott will transport and set up offshore structures at BSP’s Champion Waterflood B2/3 project. The company will install four jackets at water depths of 25–30 meters. McDermott expects to complete this project, which was incorporated in its fourth-quarter 2013 backlog, in the third quarter of this year.

This contract follows the Arabian Gulf deal wherein the company was awarded an engineering, procurement, construction and installation (EPCI) job by an operator in the Arabian Gulf. The project undertaken by the company involves engineering, fabrication, transportation and installation of four new offshore facilities, in addition to expansion of two current production facilities. The project is scheduled to be over by the first quarter of 2015.

Prior to this, McDermott had inked a deal with Saudi Aramco, an oil and gas firm in Dhahran, Saudi Arabia, to construct and install two 20-kilometer 230 kV subsea circuits in the Abu Ali and Khursaniyah fields, located in the Arabian Gulf.

Post EPCI contract, shares of the company increased over 6% to settle at $7.84 on Mar 6. However, it still does not suffice to cover the 9% slide that the company faced after reporting disappointing fourth-quarter results. The company reported a massive 600% negative surprise and even withdrew its prior guidance.

However such results are nothing new for McDermott. The company reported poor numbers all through 2013, missing the Zacks Consensus Estimate in all the four quarters. Though we positively view the transition of these projects from the backlog stage to the execution phase, we remain cautious.

McDermott currently has a Zacks Rank #4 (Sell), implying that it is expected to underperform the broader U.S. equity market over the next one to three months.

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